In a speech by European Council President Herman Van Rompuy, he mentioned energy and taxes as two issues that will be discussed at the meeting in May. Interestingly, the press release states: “The other issue I put on the May agenda for European leaders is tax evasion and avoidance. There we have to seize the current political momentum, especially on improving exchange of information between our countries. Tax fraud is exactly the kind of issue where it is first and foremost for Member States to act, but where they cannot effectively do so on their own.”
- The phrases “tax evasion,” “avoidance” and “tax fraud” all seem be used interchangeably with no distinction in application or meaning. This seems to be a growing trend in public communications, leading to potentially wrong conclusions and inappropriate actions. Ensure the relevant phrases, supplemented by intent, are used to convey the message.
- Ensure one or more members of Tax are keeping aware of these meetings and trends.
- Inform senior management regularly of current trends, as perceived by the European Council and Member States.
Some examples of Best Practice strategies to strategize for audits, before they begin.
- Audit defense file for significant transactions and potential risks
- Transfer pricing documentation; contemporaneous, available within the audit request period, without significant penalties
- Inter-company Agreements: signed, readily available; does substance of transactions match the form
- Tax reserves on statutory financials: review, know how to respond to auditor’s queries
- Loan agreements, review for arms-length documentation, rationalize different loans with different interest rates
- Audit notice/telephone call: is there a global communication process for prompt notification and pre-audit planning
- Change of finance personnel, ensure a seamless transition for audit defense files and documentation
- Identify the first point of contact for an audit “raid”
- Who will meet with auditors regularly, company personnel/outside advisors
- Company information, organization charts, etc.; identify what should and should not be provided
- Information for other entities/years not under audit; be prepared to react to such queries quickly and consistently
- Consistency of global methodologies, ensure there is a governance process as tax authorities do exchange information
- Amnesty provisions; how are you made aware of them, process for review if applicable
- Annual review of pre-audit Best Practice strategies for awareness and governance
Hope this is helpful, I look forward to your valuable ideas.